The Bitter Cost of Business

The Navy must do a better job of retaining one of its most valuable resources—the post-major command captain.

Capt. Eyer Proceedings 2008 Author of the Year - 3rd Prize

Last May, the Chief of Naval Personnel, Vice Admiral John C. Harvey Jr., said the "primary officer retention challenge we face today [is] sustaining our O-6 inventory." He then went on to specify some of the details inherent in this problem. As of that date, he reported, the simple body-by-body inventory of captains fell 189 short of the Navy's programmed and funded O-6 billets. Further, 39 percent of the existing inventory of captains were filling non-O-6 programmed billets, owing at least in part to an increasing demand for senior officers in individual augmentee (IA) billets. The result, in total, was that the Navy was leaving 439 funded O-6 billets empty.

The root cause of this misalignment was identified as the "many demand signals for the post-major O-6 workhorses we all want in our key billets," which, when coupled with the fact that the replenishment of captains through promotions is, and has been, less than the loss rate due to retirements, creates an expanding and complex crisis.

A discussion followed which seemed aimed largely at correcting this growing misalignment by encouraging flag officers to be more flexible, and less determined to have these "post-major O-6 workhorses" for what they view as key (though non-programmed) billets. Vice Admiral Harvey pointed out that, in general, "We simply cannot produce additional O-6s at the pace the demand signal for them is projected to grow."

For those hoping a solution might lie in Defense Officer Personnel Management Act-grade relief legislation, which could be used to "promote our way out of current shortfalls and misalignments," this was determined to be a blind alley, since projected O-4 and O-5 inventories, themselves short, do not exist in sufficient numbers to solve the O-6 shortage for some additional years.

These are the facts, and they are not in dispute.

Voting with their Feet

What is interesting, though, is the question of where the solution lies to the ongoing hemorrhage of these captains. What can be done about the fact that over the past four years, captain retirements have outpaced promotions by 16 percent? How to stanch the flow? Before this can be addressed, however, the question of what drives captains to stay or go should be examined.

The apparent belief, based on survey, is that captains are leaving for two distinct reasons: first, the promise of civilian job opportunities and compensation, and second, the promise of more time spent with family—a consideration greatly enhanced by the possibility of a year-long individual augmentee assignment in a combat zone.

It is difficult to see what the Navy can do to counter these exit incentives in any meaningful way. With regard to compensation, even in the most simplistic sense, gross pay declines significantly the moment a captain leaves major command because he or she is no longer eligible for a number of benefits, like sea pay. In addition, any bonuses, by law, expire around the time the captain leaves sea duty.

Even if a captain remains on active duty and is promoted to admiral, the fact is that real pay will not rise to equal that received in his major command tour until he is, probably, a fully paid two-star. This may seem counter-intuitive, but in any given strike group, there may be up to a dozen officers who out-earn the rear admiral (sel) in charge.

On the other hand, market-average compensation for a retiring O-6 virtually guarantees doubling of overall income when added to captain retirement pay. Financially, it seems, staying in is an inescapably poor decision.

As for the family-time issue, even if not on sea duty, it is clear that any job which the Navy would deem appropriate for a post-major O-6 would require long hours, probably offer little prestige (certainly nothing even approaching major command), and be tremendously demanding and stressful. In terms of spending time, at long last, with one's family, taking another Navy job also seems to be a poor decision.

Conversely, it appears that the primary reasons captains would consider staying are the opportunity to complete meaningful work, and the increased retirement benefits that come with additional years in service. The question of "meaningful work" bears further examination. Regarding the second incentive to stay longer, with the implementation of the "High Three" retirement system (which takes the pay average of an officer's last three service years instead of the former system that paid based on an officer's final pay year), there is clearly a reduced financial incentive for O-6s to remain on active duty beyond the minimal three years time in grade, at least as of now.

What seems evident is that whether or not the listed reasons to go, or stay, are valid—and they appear to be incomplete and over-simplified—a solution is required to stop the outflow of our best and most experienced officers.

The Forlorn(?) Hopes

Since last spring, there has been considerable examination of this problem, including direct flag-level query to some captains in major surface warfare command. Yet, despite the churn, despite the missives and the apparent enthusiasm for addressing this problem, and despite the crisis-level shortage of O-6s, it is not evident that a solution is coming to light in any compelling or gratifying fashion.

With regard to "meaningful work," certainly a part of the problem is a mismatch in the interpretation of the word "meaningful." For the Navy, this tends to mean challenging, important, and hard employment, beneficial to the service. For the captain, an assignment which is enjoyable, fulfilling, or helpful-in-my-transition-to-civilian-employment may be what he or she considers most meaningful. This is not to say there are not many captains who would take jobs that benefit the Navy, but it must also be understood that for many captains, the prospect of hard labor at personal cost is not an incentive to stay on, especially following years of sacrifice.

Ideas for a solution to O-6 retention are falling along two lines: financial incentives and job assignment.

First, there is a push towards creating new financial incentives for senior officers. These, however, will require Congressional action, and in any event, may not arrive in sufficient amount or timeliness to affect many more captains' decisions. In order to compensate for lost civilian wages, the amounts would have to be significant. Still, it is a useful idea for the long-term.

As for the job assignment, ideas gaining ground are geographic stability and the "bundling" of job packages. Bundling could mean that if the captain will take this job now, the Navy will work to get him that job next. These plans, unfortunately, could be difficult to enact and enforce. First, only a few locations, like Washington, D.C., and Norfolk, Virginia, possess the necessary array of O-6 jobs to support geographic stability. Second, it should be expected that in order to get to the desired second tour, the captain would be expected to do a "heavy lifting" job first. Further, it is difficult to know what jobs would be sequentially open for bundling; there are too many opportunities for the well laid plan to fall apart though retirements, extensions, and emerging Navy needs. It is difficult to see how, realistically, a job three years away could be locked in today. Too many variables are involved.

There is another layer of complexity in enacting this bundling plan. Regardless of what solution is adopted, it is certain that it will have to be the child of many parents. This is difficult because different agencies and authorities within the Navy have different agendas. A solution is unlikely until a unified theme, with shared pain and enforced by unified detailing, is brought forward. A heretofore unattainable level of detailer control, O-6 influence over his/her own detailing process, and flag restraint, will be required. This will not be easy. Any effective solution will mean fundamental change because the current approaches are becoming increasingly ineffective.

A Reservoir of Good Will

As was suggested earlier, it is not clear that the reasons for captains staying or going are entirely correct. Probably each one's mental calculus regarding this decision is infinitely more complex than can be represented by four simplified factors. It is also likely that the captain in question may not fully understand, or be able to articulate (or care to admit) his real reasons for staying or going. Senior captains are cagey, and smart enough to be circumspect in explaining why they want to leave, since being too frank can often result in censure, or more likely, being tarred with a vindictive "he just doesn't get it" brush. Unfortunately, expressing dissatisfaction with anything results in the concern being quickly dismissed as, to quote a senior officer, "generalized whining." That approach is less than helpful in developing a fuller understanding of what drives captains.

To give a realistic example, here is a perfectly explicable decision chain that could be going on in any captain's head: "Once I achieve three years time in grade, and complete major command, unless I believe that I am going to make flag (presuming I want to make flag—and I don't see many flag officers who appear to be having any semblance of fun), I am convinced the only things that could keep me in, if I'm doing my financial and familial head-work, would be: significant financial incentives which make up for lost civilian wages, or being given the opportunity to engage in work that I find to be meaningful.

"Beyond that, I could be convinced to remain in the service if the Navy had built up in me, over the course of years, a 'reservoir of good will' abundant to the point that I will decide to remain in the service, despite the fact that I know that it is not beneficial for me and my family to do so."

A few words about this "reservoir of good will." It is the nature of our profession to endure the disappointments that come, hand-in-hand, both with naval service and moving up the chain of command: micro-management, poor leadership, and lack of choice in terms of detailing, to name but a few. Happily, these are sometimes relieved by great leadership and cheerful empowerment, but this seems to be the exception rather than the rule. Nevertheless, this challenging situation is tolerable if on-time promotions continue and the light at the end of the tunnel is command.

But, once the post-major command point is reached, a point at which the captain realizes that there is no apparent new light at the end of the tunnel, a different dynamic is in place. Financially, the Navy simply can't compete. Family time, largely an empty promise; all captains know the hours and stress associated with the work-horse jobs. Unless a reservoir of good will exists, built up over time as a result of perceived fair dealing on the part of the Navy toward the captain, there is, sensibly-speaking, no reason to stay. The Navy may say, "your Navy and your nation need you," but the captain can say "what about the lifetime of service I've already given?" Or, even worse for the Navy—"I don't owe you anything, because my sacrifice to get to this point has paid all possible bills." It would benefit the Navy to understand that, and consider what can be done to enhance that reservoir against the day that Navy will want to draw on it.

The Compact's Dilemma

When officers accept their commissions, a tacit compact is sealed. According to this compact, each party has something to trade. For the officer, it is his labor, and his willingness to undertake increasingly more challenging work. For the Navy, it is the ability to promote the officer, and even more important, to ultimately grant him command. It is a workable, if unromantic, give-and-take relationship. Of course, at any time, this compact can be broken by either party. The officer can opt to exit the service, or the Navy can decide the officer is not suited to move any further up the ladder toward command and flag rank. For the officer, this can be a rewarding relationship or it can be heart-breaking. For the Navy, these decisions are non-emotional—it's just business. Or so it seems up to the point of captains leaving major command. At that point, it becomes very emotional for the Navy, and this benefits no one.

It is important for the Navy to recognize that, post-major command, the compact is over unless flag-selection is in the offing. The Navy has little else to offer the captain at this point, and no one should be surprised they opt to become civilians. Leverage over an O-6 dissolves. While the Navy understandably would like to retain these captains, as the compact is broken, there is no sense in becoming emotional—it's just business.

As the agent of the senior community leadership, detailers are under order to put correct bodies into appropriate jobs, but, for captains, not jobs considered by the Navy to be frivolous. This creates a seemingly insoluble dilemma. If the detailer pleases his boss by pushing an O-6 into a hard job, then he risks losing the captain. If he gives the captain what he wants, he's not carrying out the orders of his seniors nor filling the Navy's more critical needs.

Carrot and stick detailing is a viable strategy until you run out of incentives. As officers have become better informed and more calculating over the years, they have cottoned to the fact that, as a post-major command officer, they hold all the cards. The balance has dramatically shifted. The Navy can do very little to or for those O-6s they want to keep. Short of major financial incentives, or simply allowing captains to do the jobs they want to do, post-command, there is no utility in appealing to loyalty or patriotism or "you owe us." Again, all that can be appealed to is that reservoir of good will—if it exists.

The Bitter Medicine

In closing, there are four approaches which seem to be viable in turning the tide of post-major O-6 workhorse retention.

First, with regard to these financial incentives, an appropriate number to cause an O-6 to surrender himself to three more years of naval service, in a challenging job, seems to be a bonus in the vicinity of $100,000. Of course the right number could be arrived at through a "bidding scheme" as was recently used to determine buy out rates for non-selected junior officers in the surface warfare community. Regardless, there would have to be a substantial incentive for the opportunity cost that results from a captain not joining the civilian job market.

Second, captains should be given greater latitude vis-a-vis the jobs offered to them post-command. This, admittedly, is a somewhat revolutionary idea, in view of the fact that captains are now, and have long been, essentially told where they are going next.

As it stands, officers in major command form a "bench" for important, post-major jobs. As demands come in, the detailer looks at the bench to determine who, among those in command, is the most likely to fill that job. The detailer then calls the captain and offers that job. It is not a discussion. Unfortunately, the Navy is so used to telling captains what to do—and having them acquiesce—that it may be difficult to change this approach, especially since so many flag officers become personally involved in that particular detailing process. Plus, the Navy does have that genuine need to fill important, meaningful jobs.

However, some small, easy, and short-term progress can be made by presenting even a brief menu of options to the O-6. Rather than simply looking at the needs of the Navy and dictating the next job, detailers could offer several and varied options of the pending "heavy lift" jobs to the captain in question. While none might be desirable to the captain, it is possible that something on the list will pique his or her interest.

Third, dissolving the still powerful zero defects mentality, and the associated micromanagement of captains in command, would go far in building that reservoir of good will. As it now stands, we are cultivating a risk averse cadre of senior officers. Why assume any risk? What is the benefit? Trusting captains in command to do the right thing, without armchair quarterbacking, would go a long way toward nurturing the reservoir, and so would actual positive, encouraging, helpful, and interested mentorship.

Finally, what could be the most effective approach: tie appointment to major command to a requirement for a post-major assignment. A bitter pill indeed, but officers don't rise to the level of command without being intensely competitive. Approaching the problem, while the O-6 can still be incentivized may provide the best, immediate, real solution.

"Tell Him, It's Only Business"

Of course, the crisis faced by the Navy is only a fair and natural product of the years of working to make the Navy mirror business, rather than the affair of the heart it was many years ago. In modern business, there is no loyalty; talent flows where pay and incentives lie. Business understands the fundamental concept of "you get what you pay for," and doesn't expect loyalty. If the Navy subscribes to a business model, then that is simply what comes with the turf. For captains who are not going to be flag officers, there is no choice but to compensate them in one way or another, or, if they're smart, they will go somewhere else.

In the past, one stayed with a company for most of their career and was subsequently rewarded by adequate benefits and retirement packages. It's only been in the last 25 years that the employer/employee relationship has changed so drastically that people play musical chairs with companies, and one sees the same people on the same circuit. With benefits drastically reduced and retirement packages dwindling and uncertain, there's little incentive for the employee to stay with any one company. They go where the money is. And that's fine with the company; they can often start out someone younger at a lower rate of pay rather than having to keep raising another employee's salary throughout a career. But the Navy is different—it's not like they can go out recruiting at the captain level. There simply is no other source of recruitment. Is this understood?

Beyond that, a larger problem looms. While the issue with captains is the tip of the iceberg, I suspect that the long-term horizon is dark. Part of the willful conversion of the Navy into a business is the inevitable and growing awareness of officers, at every level, that they are, not to put too fine a point on it, the "means of production." They are a particular kind of asset, depending on the season, more or less desirable to the Navy. Depending on that desirability, which is based, in part, on scarcity, the Navy will be more or less concerned with retaining them: bonuses or no bonuses; promotions or not; forced draw downs or not. It has nothing to do with taking care of the individual; it has to do with raw numbers.

The problem is that when officers realize that to the Navy, it's only incidentally about individuals but it's really about the bottom line, you awake to the fact that you are your only and best advocate. For the Navy to move beyond this increasingly mercenary relationship, and to move beyond the now endless requirements for new bonuses and incentives, it will have to de-model itself on business, and go back to what it seemingly once was—a family business.

Captain Eyer is the ACOS for Fleet Training at the Naval Mine and Antisubmarine Warfare Command in San Diego. He recently completed a tour as commanding officer of the USS Chancellorsville (CG-62) and is one of two officers to have commanded three Aegis cruisers, including the Shiloh (CG-67) and the Thomas S. Gates (CG-51).

Captain Eyer is the ACOS for Fleet Training at the Naval Mine and Antisubmarine Warfare Command in San Diego. He recently completed a tour as commanding officer of the USS Chancellorsville (CG-62) and is one of two officers to have commanded three Aegis cruisers, including the Shiloh (CG-67) and the Thomas S. Gates (CG-51).

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